Big Oil’s Tobacco Moment
Shell is responsible for more emissions than most countries. A new court ruling holds it accountable.
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A Dutch court on Wednesday ruled that Royal Dutch Shell, the big oil company, is on the hook both for the greenhouse gas emissions caused by its own production of oil and gas and the downstream use of those products. It’s a bit of a tobacco cabal moment but for the oil industry: For the first time, an international tribunal has held a multinational company accountable for its role in accelerating climate change and ordered it to change course.
It’s not clear how the court might enforce its judgment against Shell, and it’s not clear if any other courts will follow The Hague’s lead. But coming the same day that ExxonMobil was fighting with shareholders over the company’s dedication to clean energy, the Dutch ruling seems to mark an inflection point in Big Oil’s battle against the growing climate lobby.
“It’s less about the legal system than societal expectations,” said Jason Bordoff, the founding director of the Center on Global Energy Policy at Columbia University. Big investors are demanding change. Environmental groups are clamoring for action to decarbonize major economies and to ensure that developing economies don’t fall into the coal curse. The Biden administration has rejoined the Paris climate agreement, raising hopes around the world that after four years of stasis, one of the world’s biggest emitters of greenhouse gases will take the threat seriously.
What happened in The Hague, and what does it mean for oil and gas companies and the broader fight against climate change?
What is this court ruling?
A district court in The Hague, in the Netherlands, heard arguments last year about Shell’s contribution to global warming. A key part of the argument: Shell, as one of the world’s biggest oil companies, had an outsized impact on human emissions that cause global warming. The suit, filed by Dutch environmentalists (the local chapter of Friends of the Earth) alongside thousands of private citizens, alleged that Shell alone was responsible for more emissions than most countries—nearly 2 percent of all human-caused emissions, ever. And it’s still one of the top 25 emitters globally.
The court ordered Shell to ramp up its ambition—specifically, to cut carbon dioxide emissions by 45 percent over 2019 levels by 2030, more than double the company’s own target. That’s a first—even if it’s unclear how the court could enforce the ruling, which is under appeal.
Why is this such a big deal?
For starters, a court has ruled that a multinational corporation—responsible for a sizable share of greenhouse gas emissions—has to abide by the same rules that countries adhere to under the Paris climate accord. Every prior ruling has dealt with nation-states and their obligations but never with individual companies. The court explicitly ruled that nonstate actors, such as big energy companies, have concrete obligations to help meet the Paris targets, which aim to keep the rise in global temperature to less than 2 degrees Celsius above pre-industrial levels. So the ruling, even though it’s being appealed, is groundbreaking in the sense that it gets at the actual actors that are responsible, in part, for harmful emissions (as well as keeping society functioning by providing the fuel for cars, buses, and trucks that make daily life possible).
The ruling is also important for Shell and other oil companies because the judge called for absolute cuts in Shell’s emissions—which, again, is more ambitious than the company’s own plans to simply lower its carbon intensity.
Is this the breach of the dam when it comes to Big Oil and climate change?
It could be. While the ruling is being appealed, Shell will still have to start complying with the judge’s order to cut emissions. If similar lawsuits find standing—and a similar outcome—other big oil companies could come under court-ordered pressure to clean up their act, too. “If it becomes broadly adopted by jurisdictions elsewhere, it would be a significant shift” in how oil and gas companies can operate, said Bordoff, who was previously an energy and climate advisor to the Obama administration.
And the Dutch ruling doesn’t come in a vacuum. Other major oil companies are coming under increasing pressure from investors and other activists to take more aggressive steps to reposition their business at a time of rising alarm over runaway climate change. Big investments in oil and gas, many investors feel, risk becoming stranded assets in a world turning its back on fossil fuels. Many of them are pressing big oil firms to face up to the climate challenge more squarely. The same day as the Dutch ruling, a small hedge fund managed to get at least two, and perhaps three, of its nominees onto the board of directors of ExxonMobil, one of the world’s biggest oil companies. The maneuver, which won backing from several of Exxon’s main investors, is a reflection that shareholders are increasingly uneasy with a business model that has in the past downplayed the threat of climate change and which is still overwhelmingly reliant on producing and distributing fossil fuels. Chevron, another big U.S. oil company, is also facing shareholder pressure to do more about the emissions caused by the use of its products.
“There is a growing sense that doing business as usual is not sustainable,” said Glenn Schwartz, the head of energy policy at Rapidan, a consultancy. “A lot of the push is coming from the grassroots, as it were. The call is coming from inside the house.”
It’s not just activists and environmentalists who are leading the charge. This month, the International Energy Agency (IEA) sounded the alarm about the chasm between what needs to be done to limit global temperature rise and what the world is actually doing. The IEA called for a ban on internal combustion engines by 2035 and proposed stopping all new fossil fuel projects anywhere in the world—drastic measures that the agency says are required if the world is to come close to meeting its ambitious climate targets.
The twin challenges to Shell and Exxon are “consistent with rapidly escalating expectations,” Bordoff said. “We’re seeing it in finance, in appetite for fossil fuels, and from the IEA.”
So what happens next?
Big oil and gas companies, responding to activist and investor pressure, will likely accelerate many of the steps they’ve already taken to limit their carbon footprint; Shell, for instance, was already taking steps to clean up its business, just more slowly and over a longer time frame than the court ordered.
There will likely be increasing pressure in both Europe and the United States for policymakers to take a tougher line on fossil fuel production. Many Democrats in last year’s presidential contest vowed to ban hydraulic fracking—the technology that unleashed the U.S. energy gusher—and take other dramatic steps to accelerate the energy transition. President Joe Biden hasn’t taken as hard a line on fracking as some of his former rivals have, but he has made the energy transition and the fight against climate change a centerpiece of his early moves, such as the multitrillion-dollar infrastructure package. In the short to medium term, that will probably lead to a lot of energy policy whiplash in the United States—much as happened over the last 10 years—as Democratic and Republican administrations and Congresses alternated between boosting clean energy and turbocharging fossil fuels.
Amid the clamor and the policy pushes, some big changes are already apparent on the horizon. Ford Motor Co. has already booked more than 70,000 reservations for its electric version of the F-150 pickup truck, the best-selling vehicle in the United States, and which will hit showrooms next spring. The company plans for 40 percent of all vehicle sales to be electric by 2030—yet another potential blow to the business plans of oil and gas companies that rely on steadily growing appetite for liquid fuels.
“The [investor-driven] trend seems pretty unmistakable,” said Schwartz of Rapidan.
Keith Johnson is a senior staff writer at Foreign Policy. Twitter: @KFJ_FP